Nearly 25% of U.S. mortgage holders are underwater. What would you do if you were forced to move?

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I came across a disturbing report on Bloomberg this morning. According to new data published by First American CoreLogic, as of the fourth quarter of 2008 over 8.3 million U.S. mortgage holders were underwater aka owe more money than their homes are currently worth on the open market. If I recall correctly, someone said on the radio this morning that this is equivalent to around 20% of all mortgage holders, with another 5% who are within 5% of having negative equity.

This can't be good for home values. With the jobs market like it is, I am sure that many people are being forced to move to find decent employment. This leads to the question, what would you do if you were forced to move and you had negative equity in your home? Would you just walk away from your loan and let the bank foreclose on your house or would you pony up the extra dough to give your home away? I can't see many people paying money out of their own pockets to sell their house right now, if they even had the money to do so. This likely means that we will continue to see a huge number of foreclosures out there which will continue to drive down home values, regardless of what "plans" the government cooks up.

I'd walk away without paying from my pocket. Unless I really needed another mortgage. A contract is a contract, and if the contract stipulates that a default in the repayment means I'll be foreclosed, then let the contract signed between two consenting parties apply.

Is it fair to the lender? Yes, definitely. The mere fact that the penalty for non-payment is mentionned in the mortgage contract (let alone the civil code) is enough to make me believe that this eventuality is a normal part of buisness for lenders. It is his problem if he ends up losing money on that deal. With a bunch of lawyers and economists working for them, mortgage lenders already start way ahead of the average client when the deal it's time to negociate the rate.

Try to see it from a different point of view: if a car salesman sold you a car for less than cost, would you come back to him a year later and pay for the difference? I wouldn't.

Thanks for the comment, Byrne. I agree with you. For me, it wouldn't really be a moral decision...it would be a business decision. Unless I wasn't very far underwater and really needed to preserve my credit rating I can't envision paying money to the bank so that I could sell my home to someone else.

Screw the banks, they get what they deserve for not modeling properly and lending money intelligently. Besides, they're taking their fair share of money from the government.

This really isn't an issue for me anyhow. I put a huge chunk down on my home. If I end up upside down we're all in big trouble.

It is an interesting question which I probably could not answer with honesty unless I were in the situation. I believe in holding up my end of a deal. But if I were $100,000 underwater what would I really do? Is it "stealing" to walk away from an obligation to a corporation? If one takes money from an institution directly it would be. However if a contract specifies damages and consequences, then failure to fulfill them and execution of the consequence satisifies the terms, does it not? Is that stealing? Not so sure.